Whether it's been a prosperous year for your company or you're feeling the effects of the still sluggish economy, it's important to recognize your employees' contributions—and that doesn't necessarily mean a cash bonus or raise.


In fact, you may be surprised to learn that neither bonuses nor raises are required under federal law. Merit pay (such as raises) and bonuses, not tied to production, are generally matters of agreement between an employer and an employee, so long as the minimum wage and overtime requirements of the federal Fair Labor Standards Act and applicable state laws are met.

Choosing a Reward

There are countless ways to show your employees you appreciate their hard work. Some of the more popular choices include: 


  • Pay Raises. Rewarding top performing employees with an increase in pay shows that you recognize the importance of their contributions to the success of your business and can also motivate them to continually improve.
  • Bonuses. If you're uncomfortable or unsure about the company's ability to support the sustained costs of a pay raise, a one-time bonus is another option to consider. End of Year Bonus
  • Nonmonetary Rewards. If you can't afford to give monetary rewards or if you want to offer your employees a unique kind of reward, don't be afraid to think outside the box! Be creative and consider other types of rewards such as a catered staff appreciation lunch, offering a paid shorter workday of the employee's choosing, throwing a holiday or end-of-year party, or paying for a gym membership to give your employees a healthy start to the year. Even a gesture of personally thanking employees for a job well done can go a long way towards keeping your staff engaged and motivated.

Guidelines for Giving Rewards

Whether you choose to give your employees a raise, a bonus or some other token of appreciation, remember that even the best intentions can subject you to liability if you're not careful. Consider the following 3 tips to help you stay on track when rewarding your employees:


  • Be careful.  You can generally decide whether or not to give your employees a bonus or raise, as well as how much to give them. Be careful about making any verbal or written commitments regarding a raise or bonus--even a casual mention of a bonus or raise could be construed as binding. And remember to check with your accountant or a financial professional about the tax implications of any rewards you plan to give before making a decision.
  • Be clear. The U.S. Small Business Administration (SBA) suggests including your reward policy in your employee welcome kit or benefits package and reminding employees of your policy when performance review season comes around.
  • Be objective. When it comes to assessing eligibility for a pay increase or other benefits, the SBA recommends establishing a clear grading system upon which to measure performance in a fair and consistent manner; documenting your reasons for making the award; and backing it up with performance examples.


Also keep in mind that federal anti-discrimination laws require that bonuses be provided on a nondiscriminatory basis. This means the eligibility criteria for bonuses must be applied in a nondiscriminatory way, and eligible employees must receive bonuses in nondiscriminatory amounts. (States may have their own requirements as well, so be sure to check out your state’s anti-discrimination laws.)


The SBA's blog, Recognizing Performance in a Tough Economy: How to Best Reward Stand-Out Employees, offers additional information about employee rewards. You can also check out our section on Motivating Employees for more ideas.


And take a moment now to download our FREE Federal Labor Laws by Company Size chart--a handy reference guide to help you stay on top of important federal laws that may apply to your business!


Image Credit: taxcredits.net via flickr


Topics: Employee Benefits, Human Resources

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